Monday, February 28, 2011

A Budget for the Rich

R. Ramakumar

Budget 2011-12 marks a sharp retreat of the government from the social and economic sectors. It has cut back expenditures in sectors that matter to common people, especially the poor. On the other hand, it has given huge concessions to the corporate sector in the form of tax cuts and exemptions.

Let us take the overall fiscal stance of the budget. The underlying strategy is to reduce its fiscal deficit to 3.5 per cent and revenue deficit to 2.1 per cent by 2013-14. For this purpose, it has rolling targets for every intervening year. In 2010-11, the fiscal deficit was 5.1 per cent. Thus, fiscal deficit would fall by 1.6 per cent between 2010-11 and 2013-14. During the same period, the Gross Tax Revenue is projected to rise from 10 per cent to 11.3 per cent of the GDP, a rise by just 1.3 per cent. In other words, there has to be a continuous cutback in expenditures between 2010-11 and 2013-14.

Budget 2011-12 begins this process in earnest. It has sharply cut total expenditure, as a share of the GDP, from 15.4 per cent in 2010-11 to 13.7 per cent in 2011-12 (assuming that nominal GDP grows at 17 per cent in 2011-12). Within total expenditure, revenue expenditure would fall from 13.4 per cent to 11.9 per cent of the GDP and capital expenditure would fall from 1.7 per cent to 1.6 per cent of the GDP.

The cut in expenditures as a share of GDP is set to apply across a large number of sectors. The largest cut has been on subsidies. If we take “major subsidies”, the expenditure is set to fall from Rs 154,212 crore in 2010-11 to Rs 134,411 crore in 2011-12. In relative terms, this would mean a fall from 2 per cent to 1.5 per cent of the GDP. Within major subsidies, the sharpest cut has been in petroleum subsidy, by Rs 14,746 crore. Fertiliser subsidy has been cut by Rs 4,978 crore. Without doubt, a major rise in fertilizer prices can be expected in 2011-12, as the government would move into a nutrient-based subsidy (NBS) regime for urea too. Costs of cultivation are set to rise, when millions of farmers face distress.

Food subsidy has been cut by Rs 27 crore. At a time when food inflation continues to be high, the government has refused to use the public distribution system (PDS) to provide food to the poor at affordable prices. In the light of the absolute cut in spending, the sincerity of UPA-2 in bringing in a meaningful food security bill stands in serious doubt. Clearly, the effort of the government is to dismantle the PDS in a phased manner and introduce food coupons or direct cash transfers (as Economic Survey 2010-11 demands). This marks a clear retreat of the state from its vital social welfare functions, and its transformation from a direct provider to an indirect provider. The budget has announced similar intent in the case of subsidies in kerosene and fertilizers also.

There are major problems associated with moving into a direct cash transfer scheme while distributing subsidies. Leaving them apart, how will the government provide direct cash assistance? On this, the budget harps all hopes on an extraordinarily ambitious and faultily designed Aadhaar project. The Aadhaar project still does not have a feasibility report in place. Privacy concerns apart, it remains unclear whether biometric technology is capable of the gigantic task of de-duplication among a population of over one billion. The Unique Identification Authority of India’s (UIDAI) “Biometrics Standards Committee” itself has noted that over 15 per cent of the Indian population (or over 150 million persons) may not be able to enroll for a UID number due to poor quality fingerprints. In other words, the scheme to directly provide subsidies to people is based on a project with an unproven technology and unknown cost.

The withdrawal of the government is visible in several other sectors too. Let us take revenue expenditures under “social services”. The fall in expenditure on social services is by 4.8 per cent between 2010-11 and 2011-12; there was an absolute fall of Rs 5,295 crore. In almost every sub-sector within social services, the growth rate of expenditure between 2010-11 and 2011-12 is lower than between 2009-10 and 2010-11. In “social security and welfare”, expenditure is set to fall by a whopping Rs 15,184 crore.

There are absolute falls in revenue expenditures in “economic services” also. Between 2010-11 and 2011-12, the revenue expenditure on all economic services is set to fall by Rs 17,731 crore. Within economic services, the largest cuts are to be in “agriculture and allied services”; the revenue expenditure on agriculture is to fall in absolute terms by Rs 5,568 crore. Within agriculture, the largest fall is to be in crop husbandry, with an absolute cut of Rs 4,477 crore. “Rural employment” is a category within economic services, which includes MGNREGS. Here, the revenue expenditure is to fall by Rs 100 crore. Given the grandiose announcement regarding linkage of MGNREGS wages to the price index, this cutback leaves one in deep doubt about the seriousness with which UPA-2 views the scheme.

While “subsidies” for the poor are cut, there has been a shower of “incentives” on the corporate sector. The total revenue foregone, by way of direct and indirect tax exemptions, was Rs 4.82 lakh crore in 2009-10; this rose to 5.11 lakh crore in 2010-11, of which Rs 88,263 crore was for the corporate sector. In 2010-11, revenue worth Rs 11,501 crore was lost on account of deduction of export profits to software technology parks; another Rs 5,555 crore was lost on SEZs. When we compare this with the cut in expenditures in crucial social and economic sectors, the class bias of the government is fully revealed.

Budget 2011-12 is not for the aam aadmi, leave alone the poor. The chant of the mantra of inclusiveness is just rhetoric.

(written for Asian Age, 01-03-2011)

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